This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the top of any article.

Business Leaders Stay Behind Scenes Amid U.S. Fiscal Fight

As the debate strays from taxes and spending, executives refrain from public lobbying.

President Barack Obama and congressional Republicans share one piece of common ground in the stalemate over the budget and the debt ceiling: Neither side wants to budge.

U.S. business leaders are weighing in with their own message for the two parties: It’s not our job to save Washington from itself.

Unlike previous fiscal showdowns, including the last-minute budget deal at the start of this year and the standoff over the debt limit in 2011, business representatives aren’t rushing in to publicly lobby for an agreement.

With four days to go before federal spending authority runs out and a few weeks until the U.S. hits its borrowing limit, executives who’ve engaged in past Washington fiscal battles say while they’d prefer that the government not shut down, their top concern is avoiding a federal default.

“If we default, it’s economic suicide,” said David Cote, chief executive officer of Honeywell International Inc. and a member of the Campaign to Fix the Debt. “You don’t want the Congress or the president looking at it and ever saying ‘I have the upper hand here because the other side has to blink.’ This is one where both sides have to blink.”

This version of the budget-and-debt debate has gotten tangled with unrelated issues including the president’s health-care law and TransCanada Corp.’s Keystone XL pipeline. Executives say they see little chance that Obama or Republican leaders can get an agreement on what should be the main issues of taxes and entitlement spending, and without that part of the equation, many executives are staying behind scenes.

Cote said he’s made the point during conversations with Republican and Democratic congressional leaders as well as Obama and other administration officials that they should use this opportunity to deal with those issues.

“We still have not addressed the big things here, which are entitlement and tax reform,” said Cote, who was a member of Obama’s 2010 fiscal commission. “It’s a great time to say let’s talk about all these other things.”

Cote was among a group of CEOs Obama met with from the Business Roundtable last week in Washington. The president urged them to get engaged and encourage lawmakers to avoid a government shutdown and raise the debt ceiling with minimal disruption.

Treasury Secretary Jacob J. Lew held a conference call on the debt limit yesterday with about three dozen business leaders including Bank of America Corp. Chief Executive Officer Brian Moynihan, Blackstone Group LP CEO Stephen Schwarzman and Goldman Sachs Group Inc. President Gary Cohn.

Debt Limit

The topic was a letter Lew sent to House Speaker John Boehner saying that the extraordinary measures being used to avoid breaching the $16.7 trillion statutory debt ceiling will be exhausted no later than Oct. 17.

Lew also was at a meeting in New York Sept. 24 hosted by Morgan Stanley Vice Chairman Tom Nides with more than a dozen financial executives including Blackstone Group LP President Tony James, Evercore Partners Inc. CEO Ralph Schlosstein and Dan Loeb, CEO of Third Point LLC. Also among the attendees at yesterday’s meeting was Josh Steiner, head of Industry Verticals at Bloomberg LP, the parent company of Bloomberg News.

Most of the discussion was focused on the debt ceiling. Lew told the group that while the administration has been willing to compromise to get a larger budget deal, they won’t negotiate when the full faith and credit of the U.S. is at stake, according to participants.

“Information is very important at a time like this,” Nides said. “People need to understand this is not something that the administration is taking lightly.”

James said the fact that markets have remained calm amid the political wrangling poses a danger.

“That gives politicians of some stripe leeway to push it to the limit, and if you push it to the limit, there’s a high likelihood or probability or possibility, maybe, of miscalculation,” James said in a Bloomberg Television interview.

Treasury 10-year notes rose yesterday, pushing yields to the lowest level in six weeks, on speculation that budget talks may fail to avert a government shutdown. The benchmark U.S. 10- year yield dropped three basis points, or 0.03 percentage point, to 2.63 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices.

U.S. stocks have slumped during the past week, with the benchmark Standard & Poor’s 500 Index retreating 1.9 percent in the past five sessions. For the year, the S&P 500 is still up 18.7 percent.

Fiscal Deadlines

The deadlines are nearing. The government’s fiscal year ends Sept. 30 and Congress and the White House still haven’t agreed on funding federal operations beyond that. Republicans are trying to tie a budget resolution to stripping funding for the health-care law known as Obamacare, while the president and Democrats insist they won’t let that happen.

Congressional Republicans also are threatening to bring the health law and other budget demands into raising the debt limit.

After the 2011 showdown, the U.S. credit rating was downgraded, consumer confidence dropped to its lowest point since the financial crisis in 2008 and the stock market plummeted. The S&P 500 fell 16.8 percent between July 22, 2011, when talks on a broad deal faltered, and Aug. 8, the first trading day after the government’s AAA debt was downgraded. Every stock in the S&P 500 fell on Aug. 8.

By contrast, the bond market wasn’t fazed. Yields on 10-year Treasury notes declined to 2.61 percent on Aug. 2 of that year, from 3.18 percent on July 1, 2011, and continued to fall to 1.88 percent at year-end.

Administration officials said pressure from the business community was effective in the past and would be helpful now.

“We believe they are a powerful voice on how the kind of brinkmanship we saw in 2011 can impact the private sector’s ability to create jobs and grow the economy,” said Amy Brundage, a White House spokeswoman. “And we hope that the minority of Republicans in Congress who continue to insist on playing chicken with the full faith and credit of the United States government listen.”

The administration’s outreach efforts so far have led to mostly written statements with little effect on the debate.

The Chamber of Commerce urged House members in a letter last week not to risk a government shutdown and to raise the debt limit in a “timely manner.” The Business Roundtable’s third-quarter 2013 CEO Economic Outlook Survey showed that 50 percent of the leaders asked said the budget and debt disagreements in Congress were having a negative impact on plans for hiring over the next six months.

Cote said that while the business organizations have been pretty vocal, they don’t want to get drawn into all the “political machinations” every step of the way.

“I’m going to count on our leaders being smart enough not to default,” he said.

Treasury & Risk

Treasury & Risk is an online publication and robust website designed to meet the information needs of finance, treasury, and risk management professionals. Our editorial content, delivered through multiple interactive channels, mixes strategic insights from thought leaders with in-depth analysis of best practices, original research projects, and case studies with corporate innovators.